Candlestick Trading Blog
July 1, 2008
REIT Stocks
REIT Stocks - Real Estate Investment Trust Stocks REIT stocks are very similar to any other type of stock that represents ownership in an operating business however, it has two unique features. Its business is to manage groups of income-producing properties, and it must distribute the majority of its profits as dividends. REIT stands for real estate investment trust, and it is a security that sells like a stock on the major exchanges. It invests in property (real estate) either directly through mortgages or properties. They receive special tax breaks and are highly liquid often offering the investor high yields. REIT stocks are comprised of two types of REITS including mortgage REITS, and equity REITS. About 10% are mortgage REITS and they loan money for mortgages to owners of real estate, or purchase existing mortgages. Their return on investment is produced primarily from the interest that they earn on mortgage loans. Equity REITS invest properties and revenue is generated mostly through the rent from properties. REIT stocks can be purchased through buying shares directly on an open exchange or by investing in mutual funds specializing in public real estate. One of the major benefits to investing in REIT stocks is that they often are associated with dividend reinvestment. Dividend reinvestment is when the distribution of a limited partnership (REIT) is automatically reinvested into shares of the fund. This is often done at a discount to the current market price as well. REITS often come with DRIPs (dividend reinvestment plans) which are the actual plans offered by corporations that allow the investors to reinvest their cash dividends. In addition to REIT stocks, companies offer REIT dividends, which have great advantages. For instance, as long as 90% of the annual income is distributed to investors each year, these dividends are exempt from federal taxes. REIT dividends are fully taxable however, and they can reach between 8 to 9% each year. These dividends are considered income and are typically categorized with the 401(k) and similar investment options. REIT stocks provide benefits because they are more stable than stocks since shareholders don’t have to depend completely on appreciation in the stock in order to make money. They are similar to bonds as well in that they are very responsive to interest rate changes. Typically when interest rates come down, REITS will rise, and when interest rates rise, REITs typically fall. They are dividend paying stocks and are considered along with high-yield bond funds. Due to the continuously low interest rates, there has been a rise in these stocks. First of all, the low interest rates allow the companies to borrow money on the cheap. Secondly, the low interest rates make these stocks more attractive to investors looking for additional income since by law they are required (as mentioned above) to pay out 90% of their profit as dividends to shareholders. Continue to research REIT stocks as a possible investment to add to your investment portfolio. Just remember that the success of these stocks is dependent on many factors, including the stock market, interest rates, and the economy. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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